Who Pays for the Boardman Outage?

CUB submitted response testimony last week in a case involving a broken coal power plant, PGE’s Boardman plant in Eastern Oregon, up near the Washington border. PGE has asked for $50.1 million from customers to cover some of the time the plant was closed. CUB and PUC staff have both responded by saying customers should pay their fair share of the outage, but that we think a fair amount would fall well under $1 million. That’s a big difference in numbers. Here is basically what happened.

A turbine rotor crack at Boardman caused the plant to close, or go “off-line,” back on Oct. 23, 2005. While replacing the repaired rotor in February of this year, the generator rotor was damaged, causing further delay. The plant finally got going again in late May 2006, having been out for about 5 months. A root cause analysis, determining what was the original cause of the outage, has not been completed. When that is done, it will be used to determine whether PGE’s management of the plant was prudent or imprudent, and if it is found that the rotor cracked due to PGE’s imprudence, then CUB will argue that customers should pay none of the costs. Until that root cause analysis is done, however, let us tell you about the current case.

PGE filed a deferral on the outage, a request to track the costs associated with having Boardman closed, in order to ask the PUC to approve passing those costs along to customers. Their request would only include costs from the first phase of the outage due to the cracked turbine rotor, from Nov. 18th through Feb. 5th. (Costs for the second phase were not requested, presumably because it was clear that PGE was responsible for the second rotor’s breaking, or because inexpensive hydropower during that time kept replacement power costs low.) PGE estimated the cost of this outage at $50.1 million. PUC staff, in their own analysis, thought $42.8 million was the correct cost to cover the outage.

This was an unusually long outage, but these things do happen. Power plants go off-line, as PacifiCorp’s Hunter coal plant did during the 2001 power crisis, as PGE’s Trojan nuclear plant did fairly regularly in its 17-year operation. A certain amount of leeway is built into the Return on Equity, the profit that these corporate utilities are allowed to make under state regulations. We provide a Return on Equity (ROE) to utilities, the amount of which currently runs at about 10% profit on investment, so that utilities are rewarded for the risks associated with their investment in the system. Generally, this ROE is considered ample compensation for the risk of most plant outages and other unexpected costs.

The ROE is a guesstimate based upon forecasts, since no one can really say what the weather and therefore hydropower will be like, or what the actual demand for electricity will be, etc. When costs are low and profits are high, the utility keeps the extra money for its shareholders. When costs are high and profits are lower, the utility should absorb some of the higher cost. Traditionally, a sharing mechanism is often used to ensure that the risks and benefits are not weighted too heavily on either the utility or on customers. This sharing mechanism involves using a “deadband” that includes costs that the company is expected to absorb as part of the normal risk of doing business and making a profit.

PGE is asking for customers to pay 100% of the costs associated with Boardman’s outage from 11/18/05-02/05/06. CUB is arguing that this is nonsense. Assuming that PGE’s management of the plant has been prudent, customers should pay some of the costs that fall outside the normal cost deadband. But because we believe the deadband is about $42 million, customers’ share of costs comes to less than $1 million, not $50 million.

Boardman is a more expensive plant to run, even on good days, than most coal plants. About one third of Oregon’s electricity is served by coal, mostly from plants in Utah, Wyoming, or Montana. The power produced in these other Western states is then transmitted to Oregon over the grid as electricity. Boardman, on the other hand, has no nearby source of coal and requires railroad shipments of coal from the Rocky Mountains to be brought in, which is a more expensive proposition. And then Boardman has been the target for criticism based on the air pollution it emits, dirtying the air of “more than 10 protected parks and wilderness areas, including Mount Hood, Mount Rainier and Mount Jefferson…” (Oregonian, 05/23/06).

Finally, there is also the issue of carbon regulation, which we believe to be an inevitable result of global warming, the financial burden of which will fall most heavily on customers consuming coal-based electricity. Boardman was approved in 1975, before CUB’s existence, and was built without pollution control technology that was available even at that time. Be assured that CUB will fight to keep any more traditional coal-burning plants from being built in Oregon. And we will make sure customers don’t pay any more than they need to on the one we already have.

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